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ABSTRACT
Insurance is a technique where losses suffered by few are met from funds accumulated through small
contributions made by many who are exposed to similar risk. Crop insurance is a means to protecting the cultivators
such as natural fire, weather, floods, pests, diseases etc. In case of loanee farms, farm yard manure was found to
influence the production significantly at 5 per cent level and followed by labour which was also found to influence the
yield at 1 per cent significant level. In case of Non-loanee farms, plant protection chemicals were influenced the
dependent variable more at 10 per cent significant level when compared to other inputs in paddy production. The co
efficient value of plant protection chemicals was 0.29 which showed that the major contribution of plant protection
Original Article
against financial loss on account of anticipated crop-loss arising out of practically all natural factors beyond their control
chemicals to the total yield. Farm yard manure was influenced the paddy yield at 5 per cent significant level.
In the Non-insured farms, plant protection chemicals placed the major contribution to influence the paddy yield
i.e. one per cent increase in the application of plant protection of chemicals resulted in 0.41 per cent increase in the yield.
It was followed by number of seedlings and fertilizer which accounted 0.15 (at 10 per cent significant level) and 0.14 per
cent (at 5 per cent significant level) respectively. Similarly, farm yard manure and labour were influenced the yield with
more or less same regression co efficients viz., 0.05 and 0.06 respectively in the Non-insured farms.
KEYWORDS: MNAIS, Production Function, Decomposition, Loanee Farmer, Non-Loanee Farmer Non-Insured
Farmers.
Received: Mar 26, 2016; Accepted: Apr 08, 2016; Published: Apr 20, 2016; Paper Id.: IJASRJUN20160018
INTRODUCTION
Insurance is a technique where losses suffered by few are met from funds accumulated through small
contributions made by many who are exposed to similar risk. Crop insurance is a means to protecting the cultivators
against financial loss on account of anticipated crop-loss arising out of practically all natural factors beyond their
control such as natural fire, weather, floods, pests, diseases etc. The sum insured could be the total expenditure or a
multiple of it or a proportion of expected income from crop(s) for which premium is paid. The indemnity (claims
payable against the paid out of pocket expenses) is payable on the basis of shortfall in average yield from the
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138
guaranteed yield (threshold yield). The claims are paid after the loss in yield is ascertained. Weather based crop insurance
is another avenue for transferring production risk to the insurer. It aims to mitigate the hardship of the insured farmer
against the likelihood of financial loss on account of anticipated crop loss resulting from incidence of adverse conditions of
weather parameters like rainfall, temperature, frost, humidity etc. While crop insurance specifically indemnifies the
cultivator against shortfall in crop yield, weather insurance is based on the fact that weather conditions affecft crop yield
even when a cultivator has taken all the care to ensure good harvest. Studies of historical correlation of crop yield with
weather parameters help us in developing weather thresholds (triggers) beyond which crop starts getting affected adversely.
Payout structure may be developed using the weather triggers to compensate cultivators to the extent of losses deemed to
have been suffered by them. Actual loss in yield or income is not ascertained for eligibility for claims. In other words,
weather insurance uses weather parameters as proxy for crop yields in compensating the cultivators for deemed crop
losses due to reduction in yield. Agriculture, as the largest private enterprise in India, provides not only the food and
livelihood security but also supports for the economic growth and social transformation of the country. The enterprise of
agriculture is subject to many uncertainties. Yet, more people in India earn the livelihood from this sector than from all
other economic sectors put together. Agriculture production and the resultant farm incomes in India are frequently affected
by natural disasters such as drought, floods, cyclone, storms, landslides and earthquakes. All these events which are beyond
the control of the farmers severely affect them through loss in production and farm income. Agricultural insurance benefits
farmers to stabilize farm income and investment and guard against disastrous due to hazards or low market prices. Crop
insurance not only stabilizes the farm income but also helps the farmers to initiate production activity after a bad
agriculture year. At present there are four Agricultural schemes are operating in Tamil Nadu .this paper aims to study the
performance of MNAIS (Modified National Agricultural Insurance scheme). 1) To assess the impact of MNAIS to
overcome the risk on farm income.
Decomposition Analysis to calculate the resource use efficiency of financially included and financially Excluded
farms.
ln Yi = 0 + 1 ln X1 + 2 ln X2 + 3 ln X2 + 4 ln X4 + 5 ln X5
Where, the subscript i, denotes the ith farmer in the sample,
Yi = Output of Paddy (kg/ha),
0 . . . 5 = Parameters to be estimated,
X1 = Number of seedlings (kg/ha)
A Comparative Study on the Performance of Modified National Agricultural Insurance Scheme with
Reference to Loanee, Non- Loanee and Non-Insured Farmers in Sivagangai District of Tamil Nadu
139
DECOMPOSITION ANALYSIS
Decomposition Analysis for Financially Included Farms with Financially Excluded Farms
lnY11 = ln a0 + a1 ln X11 + a2 ln X12 + a3 ln X13 + a4 ln X14 + a5 ln X15 + u1
lnY21 = ln b0 + b1 ln X21 + b2 ln X22 + b3 ln X23 + b4 ln X24 + b5 ln X25 + u2
lnY11 lnY21 = (ln a0 ln b0) + (a1 ln X11 b1 ln X21) + (a2 ln X12 b2 ln X22) + (a3 ln X13 -
b3 ln X23) + (a4 ln
- a2 ln X22)] + [a3 ln X13 - b3 ln X23 + (a3 ln X23 - a3 ln X23)] + [a4 ln X14 - b4 ln X24 + (a4 ln X24 - a4 ln X24)] + [a5 ln X15 - b5
ln X25 + a5 ln X25 - a5 ln X25] + u1- u2
= [ln (a0 / b0)] + [(a1 - b1) ln X21 + (a2 b2) ln X22+ (a3 b3) ln X23 + (a4 b4)
ln X24 + (a5 b5) ln X25] + [a1(ln X11/ X21) + a2(ln X12/ X22) + a3 (ln X13/ X23)
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The estimated Cobb Douglas production function for loanee farms was
ln Y11 = 0.58 + 0.28 ln X11 + 0.38 ln X12 + 0.11 ln X13 + 0.25 ln X14 + 0.33 ln X15
Substituting average values of corresponding independent variables in the above equation,
ln Y11 = 0.58 + 0.28 (2.18) + 0.38 (1.11) + 0.11 (2.52) + 0.25 (1.18) + 0.33 (1.23)
ln Y11 = 2.5885
The estimated Cobb Douglas production function for non- loanee farms was
ln Y21 = 0.37 + 0.14 ln X21 + 0.17 ln X22 + 0.16 ln X23 + 0.29 ln X24 + 0.15 ln X25
Substituting average values of corresponding independent variables in the above equation,
lnY21 = 0.37 + 0.14 (2.01) + 0.17 (1.10) + 0.16 (2.48) + 0.29 (1.02) + 0.15 (1.18)
lnY21 = 1.7189
Estimated lnY21 = 1.7189
Table 1: Cobb Douglas Production Function Estimates in Paddy
Cultivation under Loanee and Non-Loanee Farms
Sl. No
Loanee Farms
Variables
1.
2.
3.
4.
5.
6.
Intercept
Number of Seedlings
Farmyard Manure
Fertilizer
Plant protection chemicals
Labour
R Square
F value
NS Not Significant
Co - Efficients
0.58
0.28*
0.38**
0.11*
0.25NS
0.33***
0.68
23
T Value
1.72
2.53
3.01
2.18
1.64
4.22
Non-Loanee Farms
Co - Efficients
0.37
0.14*
0.17**
0.16
0.29*
0.15*
0.77
56
T Value
2.40
2.16
3.35
1.49
2.28
2.54
A Comparative Study on the Performance of Modified National Agricultural Insurance Scheme with
Reference to Loanee, Non- Loanee and Non-Insured Farmers in Sivagangai District of Tamil Nadu
141
contribution to output in Loanee farms came from FYM and labour. Both number of seedlings and plant protection
chemicals were having more or less similar regression co-efficient. In this case, plant protection chemicals were not
significantly influence the yield. The variable, fertilizer influenced the yield significantly with less value of co efficient
i.e. 0.11 which would increase the yield by only 0.11 per cent for every one per cent increase in the fertilizer.
In case of Non-loanee farms, plant protection chemicals were influenced the dependent variable more at 10 per
cent significant level when compared to other inputs in paddy production. The co efficient value of plant protection
chemicals was 0.29 which showed that the major contribution of plant protection chemicals to the total yield. Farm yard
manure was influenced the paddy yield at 5 per cent significant level. Number of Seedlings, fertilizer and labour were
influenced the paddy yield at 10 per cent significant level except fertilizer which was not significant. These four variables
were showed less contribution to the paddy yield when compared to plant protection chemicals in this category of Nonloanee farms. It could be observed form the results that Good Agricultural Practices need to be extended to those farmers
who have not adopted so far, through extension activities and other measures. This would, on one hand, cut down the plant
protection costs of Loanee farmers and on the other, increase their paddy yields through improved protection and efficient
use of other resources. Therefore, concentrated efforts needs to be made to encourage the farmers to adopt Good
Agricultural Practices to get real benefits.
Sources Contributing to the Yield Differences
Decomposition of Output Change
The percentage change in value of output has been decomposed into percentage change in output due to Loan and
percentage change in output due to change in per hectare use of other inputs. For decomposing the productivity difference
between Loanee paddy farms and non-loanee paddy farms, the parameters of the per hectare production functions and the
mean levels of input use for the two methods were essential. Hence, the production functions for those two farms were also
estimated separately. The productivity difference between the Loanee farms and non-loanee farms paddy production was
decomposed into its constituent sources and the results are presented in Table 1.
While subtracting equations (1) and (2), LHS of the equality became as
ln Y11 - ln Y21 = 2.5884 1.7189
= 0.8696
RHS of the equality is
= [ln (a0 / b0)] + [(a1 - b1) ln X21 + (a2 b2) ln X22+ (a3 b3) ln X23 + (a4 b4) ln X24 + (a5 b5) ln X25] + [a1(ln
X11/ X21) + a2(ln X12/ X22) + a3 (ln X13/ X23) + a4 (ln X14/ X24) + a5 (ln X15/ X25) ]
Substituting the respective values in the above equation,
= { 0.58 0.37 } + { (0.28 0.14) ln X21 + (0.38 0.17) ln X22 + (0.11 0.16) ln X23 + (0.25 0.29) ln X24 +
(0.35 0.15) ln X25 } + { 0.28[(ln X11/ X21)] + 0.38 [(ln X12/ X22)] + 0.11 [(ln X13/ X23)] + 0.25 [(ln X14/ X24)] + 0.33 [(ln
X15/ X25)]}
= 0.2164 + 0.5394 + 0.1141
= 0.8699
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142
I
II
1.
2.
3.
4.
5.
Percentage
Contribution
86.96
75.59
4.82
0.58
0.48
4.06
1.46
11.40
86.99
The results of the decomposition analysis revealed that the total estimated change in the value output with the
adoption of good agricultural practices worked out to 86.99 per cent. It is marginally higher than observed change in output
(86.96) and there was not much discrepancy between these two values. The difference between the observed and estimated
changes in output in both farms may be because of the non inclusion of certain factors, either due to the problem of
quantification or due to non- availability of data. The net impact of adoption of Loan in paddy cultivation can be captured
by adding the first two bracketed expressions of Equation-2. Among the various sources responsible for total productivity
variation, the difference in technology contribution alone was higher with 75.59 per cent. This could reveal that with some
level of use of seedlings, fertilizers, plant protection chemicals and human labour, the farmers have obtained 75.59 more
output per hectare by adopting good agricultural practices when compared to those who have not adopting those practices.
The contribution of differences in input use level to the productivity difference was meager at 11.40 per cent. Among the
various inputs contributing to the productivity difference between Loanee farms and Non-loanee farms, number of
seedlings (4.82 per cent), farmyard manure (0.58 per cent), fertilizer (0.48 per cent) plant protection chemicals (4.06 per
cent) and labour (1.46 per cent) contributed positively. This implied that paddy farmers practicing good agricultural
practices obtained higher output by spending slightly more on these two inputs compared to those practicing conventional
method.
Production Function Estimates in Paddy Cultivation under Loanee farm and Non-Insured Farms
The production functions for loanee farms and Non-insured farms were also estimated separately and used for the
decomposition analysis. A log linear regression (CobbDouglas type) was estimated by the method of ordinary least square
(OLS) method.
The estimated Cobb Douglas production function for loanee farms was
ln Y11 = 0.58 + 0.28 ln X11 + 0.38 ln X12 + 0.11 ln X13 + 0.25 ln X14 + 0.33 ln X15
Substituting average values of corresponding independent variables in the above equation,
ln Y11 = 0.58 + 0.28 (2.18) + 0.38 (1.11) + 0.11 (2.52) + 0.25 (1.18) + 0.33 (1.23)
ln Y11 = 2.5885
The estimated Cobb Douglas production function for Non-insured farms was
A Comparative Study on the Performance of Modified National Agricultural Insurance Scheme with
Reference to Loanee, Non- Loanee and Non-Insured Farmers in Sivagangai District of Tamil Nadu
143
ln Y31 = 0.32 + 0.15 ln X31 + 0.05 ln X32 + 0.14 ln X33 + 0.41 ln X34 + 0.06 ln X35
Substituting average values of corresponding independent variables in the above equation,
lnY31 = 0.32 + 0.15 (2.13) + 0.05(1.09) + 0.14 (2.94) + 0.41 (1.17) + 0.06 (1.15)
lnY31 = 1.6511
Estimated lnY31 = 1.6511
Table 3: Production Function Estimates in Paddy
Cultivation under Loanee and Non-Insured Farms
Sl. No
Variables
1.
2.
3.
4.
5.
6.
Intercept
Number of seedlings
Farmyard Manure
Fertilizer
Plant protection chemicals
Labour
R Square
F value
Loanee Farm
Co - Efficients T Value
0.58
1.72
0.28*
2.53
0.38**
3.01
0.11*
2.18
0.25NS
1.64
0.33***
4.22
0.68
23
Non-Insured Farm
Co - Efficients T Value
0.32
2.03
0.15*
2.12
0.05NS
1.83
0.14**
2.59
0.41NS
1.76
0.06NS
1.51
0.82
44
The estimated production function estimates are presented in the Table 3. The production function estimates have
clearly indicated that the chosen factors of production have significantly influenced the production of paddy both in Loanee
farm and Non-insured farms by 68 and 82 per cent respectively. However, there were considerable differences in the extent
of influence of different factors in paddy production. The variable, number of seedling was found to influence the
production significantly at 10 per cent in both categories of farms. In the Non-insured farms, plant protection chemicals
placed the major contribution to influence the paddy yield i.e. one per cent increase in the application of plant protection of
chemicals resulted in 0.41 per cent increase in the yield. It was followed by number of seedlings and fertilizer which
accounted 0.15 (at 10 per cent significant level) and 0.14 per cent (at 5 per cent significant level) respectively. Similarly,
farm yard manure and labour were influenced the yield with more or less same regression co efficients viz., 0.05 and 0.06
respectively in the Non-insured farms. Therefore, Good Agricultural Practices need to be extended to those farmers who
have not adopted so far, through extension activities and other measures. This would, on one hand, cut down the plant
protection costs of Loanee farmers and on the other, increase their paddy yields through improved protection and efficient
use of other resources. Therefore, concentrated efforts needs to be made to encourage the farmers to adopt Good
Agricultural Practices to get real benefits. Sources contributing to the yield differences
Decomposition of Output Change
In order to evaluate the net impact of package of good agricultural practices and other inputs on paddy
productivity, the results of the decomposition analysis is presented in the Table. Hence, the productivity difference between
the loanee farms and Non-insured farms paddy production was decomposed into its constituent sources. The percentage
change in value of output has been decomposed into percentage change in output due to good agricultural practices and
percentage change in output due to change in per hectare use of other inputs.
While subtracting equations (1) and (2), LHS of the equality became as
ln Y11 - ln Y31 = 2.5884 1.6483
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144
= 0.9374
RHS of the equality is
= [ln (a0 / c0)] + [(a1 - c1) ln X31 + (a2 c2) ln X32+ (a3 c3) ln X33 + (a4 c4) ln X34 + (a5 c5) ln X35] + [a1(ln X11/
X31) + a2(ln X12/ X32) + a3 (ln X13/ X33) + a4 (ln X14/ X34) + a5 (ln X15/ X35) ]
Substituting the respective values in the above equation,
= { 0.58 0.32 } + { (0.28 0.15) ln X31 + (0.38 0.05) ln X32 + (0.11 0.14) ln X33 + (0.25 0.14) ln X34 +
(0.35 0.06) ln X35 } + { 0.28 [(ln X11/ X31)] + 0.38 [(ln X12/ X32)] + 0.11 [(ln X13/ X33)] + 0.25 [(ln X14/ X34)] + 0.33 [(ln
X15/ X35)]}
= 0.2597 + 0.6720 + 0.0069
= 0.9386
Total estimated productivity difference between the loanee farms and Non-insured farms was estimated at 93.86
per cent which is marginally higher than observed change in output. Among the various sources responsible for total
productivity variation, the difference in loan contribution alone was higher with 93.17 per cent. This could reveal that with
some level of use of seedlings, farmyard manure, fertilizer, plant protection chemicals and labour, the farmers have
obtained 93.17 per cent more output per hectare by adopting good agricultural practices when compared to those who have
not adopted good agricultural practices. Contribution of differences in input use level to the productivity difference was
0.69 per cent only. Among the various inputs contributing to the productivity difference between Loanee farms and Noninsured farms, number of seedlings (1.48 per cent), farmyard manure (0.97 per cent), plant protection chemicals (0.31 per
cent) and labour (2.60 per cent) contributed positively except fertilizer (-4.67 per cent). This implied that paddy farmers
practicing good agricultural practices obtained higher output by spending slightly more on these four positive inputs
compared to those practicing conventional method. Fertilizer used in conventional method of cultivation has helped to
increase yield of paddy by 4.67 per cent in that conventional method. Technological developments shift the production
function up and to the right enabling the farmers to make greater use of yield increasing inputs.
Table 4: Decomposition of Productivity Difference between Loanee Farms and Non Insured Farms
Sl. No.
I
II
1.
2.
3.
4.
5.
Percentage
Contribution
93.74
93.17
1.48
0.97
-4.67
0.31
2.60
0.69
93.86
A Comparative Study on the Performance of Modified National Agricultural Insurance Scheme with
Reference to Loanee, Non- Loanee and Non-Insured Farmers in Sivagangai District of Tamil Nadu
145
CONCLUSIONS
The findings of this analysis demonstrate the superiority of insurance in terms of yield and returns advantage.
However, there is poor response of farmers to good agricultural practices due to lack of enough awareness among farmers
about its superiority.
REFERENCES
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Government of India (2006-07) Economic Survey, New Delhi : Ministry of Finance, Economic Division. 173 p.
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